Date: 06/29/2000 9:12 AM
Subject: File No. S7= 24 -99
From: Jill Dawson
To SEC:
SEC Chairman:
Arthur Levitt
SEC Commissioners
Norman S. Johnson, Isaac C. Hunt, Jr., Laura Simone Unger, Paul R. Carey
Regarding Market Makers Shorting Stocks on OTCBB
File No. S7-24-99
I think it is time for all of you to do something about the criminal
activity that you have allowed to exist for many years. You can't say you didn't
know what was (and is) going on because the articles below are from your own
investigations. My question is, why have you let it go on this long and when are
you going to fix it? You do know this is an election year! With all the heat
that is going to be put on you from the general public (now that this is out in
the open) do you think you'll be able to keep your jobs when all is said and
done? I doubt it! I would say the only chance you have to keep your jobs is to
act fast on this issue.
Personally I think you should be locked up with the Market Makers for
letting this go on for so long. If I sound mad, it's because I am! I have
watched my portfolio go from a million plus to well below a hundred thousand
dollars in the last 4 months. Not from bad investments either! From market
manipulation and short selling by the Market Makers! I've read the letters that
you have posted in response to this problem. Some people even thanked you for
trying to do something about it now. That's almost funny! I think you are all
responsible that it happened to start with. You have certainly known what the
problems are and how to fix them for a very long time.
So now that the general public knows and we know that you know, how long
before you fix it? Are you going to drag it out with bureaucratic red tape so
that all the big money Market Makers can cover their backside or are you going
to act now and put a stop to this criminal activity?
If the information you have collected on your own and the information the
public has sent to hasn't convinced you yet how serious the problem is, please
let me know and I will send you thousands of examples. In the meantime, please
read some of the articles below. I only copied part of them so click on the
URL's that are highlighted if you want to read all of them.
I'm am very thankful for the Internet because this scam to fleece the small
American investor would never have been uncovered and we would have been fleeced
forever. But then again, we may still be! Maybe you'll just turn a blind eye.
That's what you have done to this point!
http://www.sec.gov/news/extra/microcap.htm
1997
Microcap examinations of broker-dealers have been focused in the New York, South
Florida, and Colorado/Utah areas, where the greatest concentration of fraudulent
microcap activity is found. In fiscal year 1997, over 70 examinations of
microcap firms were conducted in these regions, representing about 43 percent of
all cause examinations conducted there. More than two-thirds of these microcap
examinations were referred to the Commission's Division of Enforcement or to the
NASDR for further investigation. The most common violations found were
fraudulent misrepresentations, unsuitable recommendations, unauthorized trading,
market manipulations and unregistered offerings.
Norman S. Johnson
1998
In January 1998, we initiated an examination sweep of several firms that are
players in the microcap market. These firms had all of the "red flags" of
fraudulent microcap activity, such as customer complaints, significant profits
from underwriting and subsequent aggressive market making of illiquid microcap
securities, registered representatives or principals previously associated with
disciplined microcap firms, and large pools of inexperienced cold callers.
Examiners conducted a complex and resource-intensive review of these firms'
records for evidence of the hallmarks of microcap fraud: patterns of "bait and
switch" sales techniques, misrepresentations and exaggerated claims of
performance, unauthorized trading and refusals to sell securities, market
manipulation and lax or nonexistent supervision.
In many of these cases the SEC has leveraged its resources by working closely
with the criminal authorities, and, in many of the cases described below, has
assigned SEC staff to devote full time effort to work on the parallel criminal
investigations. Our close collaboration with the criminal authorities is an
essential component of our enforcement program, given that a large number of
recidivists - with little respect for civil proceedings - engage in microcap
fraud.
(Just give them a slap on the wrist and let them go right back to stealing from
us!)
http://www.sec.gov/news/press/2000-59.txt
2000
SEC Study Reveals Problems In Display Of Limit Orders;
SRO Oversight And Disciplinary Programs Need Improvement
Washington, DC, May 4, 2000 - A Securities and Exchange
Commission staff report released today reveals problems in the
display of limit orders in the equities and options markets and
inadequacies in the markets' surveillance and disciplinary
programs for limit order display.
These are excerpts from a SEC investigation. In the first recorded conversation,
one market maker asked another to move his bid up to create a higher inside bid
in order to foster a false impression of increased demand:
Trader 1: Hello.
Trader 2: Can you go 1/2 bid in the (nickname) stock?
Trader 1: (name of stock)?
Trader 2: Yeah.
Trader 1: I'm up.
Trader 2: I'm trying to make a higher sale.
Trader 1: You got it.
Trader 2: Thanks.
This quote move facilitated a sale by Trader 2 to an institutional customer at a
higher price.
Another taped conversation involved a 3-way conversation. At the time, the firm
that employed Traders 1 and 3 was quoting 28 1/2 offered for the stock in
question:
Trader 1: Hi guy.
Trader 2: Hey, tell him (Trader 3) I'm paying 1/2 for 25,000 (name of stock) if
he wants to make a print. Trader 1: I'm sorry. What do you got?
Trader 2: One-half for 25,000 (name of stock) if he wants to make a print.
(Pause while Trader 3 gets on the line.)
Trader 3: What are you looking for?
Trader 2: Twenty-five.
Trader 3: Are you (expletive deleted) kidding me?
Trader 2: No. No. I got ... Listen. Listen, don't sell me anything. Move up.
Trader 3: I just (expletive deleted) plugged about six guys.
Trader 2: Did you?
Trader 3: Oh, my god.
Trader 2: Get up. Get up so I can make a higher sale at least, all right?
Trader 3: Sure.
In this scenario, Trader 2 refrained from insisting that Trader 3 honor his
quoted ask price, but instead requested that he move his firm's quotes up.
Trader 3 moved his firm's quotes up, as requested. This was intended to
facilitate sales by Trader 2 at higher prices.
A third taped conversation illustrates how market makers intended such quote
movements to mislead:
Trader 1: Hey, man. What's happening?
Trader 2: Hey, uh, this (name of stock)?
Trader 1: Yeah.
Trader 2: You don't mind jockeying around in this thing for me, do you?
Trader 1: Not at all. Do you want me to go up?
Trader 2: I'm trying to make a sale on my offering, here.
Trader 1: Let me go to the bid.
Trader 1 moved his firm's quotations so that he was bidding the inside bid
price. This was intended to assist Trader 2 to sell at a higher price.
Typically, the market maker acting as "agent" would go to the inside bid to
advertise its interest in buying stock, and go to the inside ask to sell stock.
Such an arrangement is illustrated by the fourth taped conversation:
Trader 1: Anyway, I got some (name of stock) for sale.
Trader 2: You do?
Trader 1: And I can't go down offered at 3/4's. Could you go down?
Trader 2: Absolutely, I'm . . .
Trader 1: Are you doing anything at all?
Trader 2: I'm working for you.
Trader 1: Okay.
Trader 2: I'm at 3/4's. I'm good for at least 5, right?
Trader 1: You're good for 25.
Trader 2: Okay. No, I mean, sometimes . . .
Trader 1: Right, right, no.
Trader 2: Guys want you to move and it's not - I figured you would be for a
decent size.
Trader 1: I'm the real thing.
Trader 2: I understand.
Trader 1: I'm going to follow you down, probably, but I'd like to see the stock
down some.
Trader 2: Okay.
Trader 1: Okay